...though I think the line was only referring to the Dwarf-kingdoms. And arguably Khazad-dûm was greater!

The greatest kingdom in Middle-earth might have been Gondor at its height. And if we look at the rest of Arda, there's Númenor. "I may be on the side of the angels, but do not think for one second that I am one of them." - Sherlock

In AUG the implication that Thranduil pays homage to Thror always irritates me slightly and I generally like the Dwarves better than the Elves.

But really I think that it's just something the writers came up with to overemphasize the importance of Erebor and make it's fall that much harder, just like they made the treasure trove impossibly large.

As you say, Gondor is on the skids and Arnor has fallen. Esgaroth has fallen onto hard times, but never seems to have had a great deal of influence on the rest of the world. If the East-elves are organized, we don't learn of it. There are the Elven realms, but they are largely isolationist and don't have a great impact on their neighbors. The Dwarves of the Blue Mountains and the Iron Hills mind their own business and we learn little about other Dwarves. Dorwinion might be a land of wines and (maybe) merchant-princes, but it doesn't seem to represent a great political power. Any other powerful empires or confederations seem to be far to the East or South and are likely aligned with Sauron (though they might need to be reminded of this after his long absence). "I may be on the side of the angels, but do not think for one second that I am one of them." - Sherlock

Its in the best interest of the film to portray Erebor as this great, well-to-do, marvellous, prosperous kingdom, so that you can share in the Dwarves grief over losing it, and be with them in their efforts to reclaim it, and with them grief upon the ruin and emptiness that fills it in The Desolation of Smaug.

My original post was simply an attempt at an honest answer to the original question, without the bias of the Longbeards or Bilbo Baggins (who really did not have much in his personal experience to compare to Erebor).

I never did address the OP's question about leadership though. None of the Dwarf-lords really assumed the role of a world leader (at least not since the First Age). And outside of the activities of the White Council, I don't think that any Elf had either since the days of Gil-galad. Even Círdan seemed by the late Third Age to be content with limiting himself to ruling the Grey Havens. The Stewards of Gondor seemed to be too busy trying to maintain the status quo of Gondor to take a more active role in the greater world. And Rohan had its own problems to contend with. "I may be on the side of the angels, but do not think for one second that I am one of them." - Sherlock

It was more to do with this particular story than with the entire history of Middle-earth. Obviously Moria was the greater power, but that had been lost centuries earlier. If I recall correctly, Erebor was founded after the fall of Moria, so in that sense it was "the greatest Kingdom of Middle-earth," but not the greatest kingdom ever. I'm not scared to be seen, I make no apologies - this is me!

I think that's why things fell apart for the free peoples over the course of the third age. There was no overriding figure like Gil-galad who was respected by everyone. Saruman the White attempted to fill that role but then he fell. Gandalf the White did indeed fill that role but he was only in charge for a couple of weeks and then the war ended. When he was in the guise of Gandalf the Grey he mostly operated behind the scenes. 1) FOTR 2) ROTK 3) AUJ 4) TTT 5) DOS 6) BOFA

Given that, in 2770 Gondor was in decline, Arnor had fallen long ago, and the Elven realms were keeping mostly to themselves, Erebor might have been the greatest kingdom of that time in the north west of Middle-earth. Dorwinion might have been a reasonably powerful merchant kingdom, but we don't know enough about it to say so. We also don't know enough about the more distant kingdoms of the East and South that were under the rule of Sauron and his servants.

"For a brief time I was here; and for a brief time I mattered." - Harlan Ellison